Urban Planning: An Academic Who “Gets It”

On
December 3, 2009, Dr Gerard Mildner of the Portland State
University spoke before the Institute of Real Estate
Management at the Oregon Convention Center. Dr Milder had
recently moved from teaching a generation of student’s at
the Institutions Planning School to the position of Director
of Real Estate within the School of Business Administration.

Within this important speech, Dr Mildner reflects on his
time as an economist teaching within the Planning School,
reminding attendees of some basics of Economics 101 and the
importance of thinking and acting in terms of the wider
public interest.

Dr Mildner commenced by stating –

“Also, I know that many of you work for firms and
clients who probably benefit from the development
restrictions of the UGB (urban growth boundary). Recently,
one of my friends told me he hoped that city planners would
block one of his competitors projects, helping his own
project to succeed.”

“We need to challenge
this kind of zero sum thinking. Most of you make you living
by leasing, selling, developing, managing, designing or
financing property space. For the sake of your career, it is
the volume of activity and the size of the market that
matters, not the price. It is the urban growth boundary that
will influence how wide and how vibrant that market will be.
And as Adam Smith taught us, out of the narrow commercial
interest of your individual activity, the broader and nobler
goal of the prosperity of the region will result.”

“Let me take you back to Economics 101 . Land
prices tend to decline from a peak at the center of a
metropolitan area until they meet the underlying value of
agricultural land.”

“At the margins, urban and
agricultural land prices will equalize as farmers and
developers compete for land. Through the interaction of real
estate markets, land is allocated to its highest and best
use. The demand for urban land grows in two ways. One, as
incomes and employment grow and people demand more land,
Two, as transportation costs fall, inaccessible areas become
more accessible.”

In specifically discussing
Portland, Dr Mildner stated –

“Implementing a
growth boundary for urban development constrains population
growth, causing land and property prices inside the boundary
to rise higher than otherwise………”

“Between 1994 and 2005, we estimate that land
prices in the region grew by 18% per year. Under these
conditions, the wise investor bought land and kept it off
the market. The inelasticity of supply shifts the burden of
the regulation to (the) consumer.”

“As a
general rule, low income households rely upon the stock of
aging housing to find something affordable. But if we
aren’t building sufficient new properties, the rich outbid
the poor for the older housing stock and affordability
suffers.”

And
too, he provides examples of normal urban markets with
elastic supply, that are allowed to meet consumers needs,
such as Dallas, Chicago, Phoenix and Atlanta.

The
Annual Demographia International Housing Affordability
Surveys (this years 6th Edition), which surveys
the 272 major urban markets of the United Kingdom, Ireland,
Canada, United States, Australia and New Zealand, identifies
clearly the affordable urban markets (i.e. those that allow
housing to be provided at or below 3 times household
incomes), and most importantly, those that need to improve
their governance and management standards, to restore
affordability to normal levels over a reasonable and
realistic time frame.

The unemployed or soon to become
unemployed within the political, finance, planning, property
and construction communities of California, now have the
time to learn Economics 101. Before too long, their
counterparts in Australia will have the (obviously) needed
spare time to learn basic economics as Mish (Mike
Shedlock) explains, when the housing bubbles crash
there.

These people would be well advised to read earlier
articles of the writer regarding the shortcomings in the training of planners and economists . Being unemployed or under
employed should be seen as a wonderful opportunity to learn
a few basics. Within the latter article I quoted the wise
words of John Alexander Smith, Professor of Moral Philosophy
at Oxford University message to new students during the
early years of the 20th Century –

“Gentlemen –
you are now about to embark on a course of studies that will
form a noble adventure…. Let me make this clear to
you…...nothing that you will learn in the course of your
studies will be of the slightest possible use to you in
afterlife – save only this – that if you work hard and
intelligently, you should be able to detect when a man is
talking rot, and that, in my view, is the main, if not the
sole purpose of education.”

“Smart growth” or
forced urban consolidation is “rot” – and should never
have been condoned, let alone taught in tertiary
institutions.

The above comments may appear to be
“harsh” – but the reality is that we get the
governance we deserve. They are a reflection of us. As
citizens we have a civic responsibility to ensure that the
needs of the wider community are met.

“For metropolitan areas to rate as
“affordable” and ensure that housing bubbles are not
triggered, housing prices should not exceed three times
gross annual household income. To allow this to occur, new
starter housing of an acceptable quality to the purchasers,
with associated commercial and industrial development, must
be allowed to be provided on the urban fringes at 2.5 times
the gross annual median household income of that urban
market. The fringe is the only supply or inflation vent for
an urban market. The critically important Development Ratios
for the new fringe starter housing should be 17 – 23%
serviced lot / section cost – the balance the actual house
construction. Ideally through a normal building cycle, the
Median Multiple should move from a Floor Multiple of 2.3
through a Swing Multiple of 2.5 to a Ceiling Multiple of 2.7
– to ensure maximum stability and optimal medium and long
term performance of the residential construction sector.”

If the Median Multiple for an urban market falls much
below 2.3, it suggests that a particular market is
experiencing an abnormal economic shock, population loss,
grossly excessive new housing supply – or a mix of these.

Artificially strangling the supply of new housing stock
on the fringes, so that fringe new house and land packages,
for example, can only be provided at $400,000, $600,000 and
beyond, understandably ripples through inflating the rest of
the urban market, creating housing bubbles.

The new
fringe starter house and land packages need to be put in
place at around $140,000 or thereabouts (whatever the 2.5
fringe Median Multiple works out to be), to ensure that
unnecessary and massively destructive housing bubbles are
not created.

Dr Mildner explains clearly the problems of
inelastic markets, but most importantly, he is capable of
thinking through balanced and workable political solutions,
something unfortunately one rarely finds in academia. Dr
Mildner states –

“What can we do to change the
city’s fate? The lesson from London is that once central
authorities monopolize development permission, affordability
suffers. As a result, we need to think clearly about the
purposes of Oregon’s land use planning system and develop
better ways of achieving its intended purposes.”

“The first objective is to find new ways to
protect unique natural areas and agricultural areas such as
Columbia Gorge or the Willamette Valley’s wine producing
region, without constraining human settlement. I contend
that we should draw lines around those unique natural areas
to protect them, rather than draw lines around urban areas
to constrain human settlement. We should establish corridors
for new urban growth that allow the population to grow in
the Willamette Valley without significant impacts on housing
prices.”

“Second, we need to return land use
planning back to county government. It is quite clear from
the last 20 years that communities within the Portland
region have different visions of how they should develop.”

Dr
Mildner concluded by clearly setting out the civic standards
and responsibilities of his Center for Real Estate, Portland
State University and of the real estate industry of Portland
–

“The real estate industry in Portland needs to
continue to be a player and participant in local, regional
and statewide decision making. We need to advocate for a
growing and competitive real estate industry. We need a
vision to counter the view that we will all be living in
small housing units, working in smaller offices, taking
longer commutes, and paying more of our incomes for housing.
Within the Center for Real Estate, we have taken a
leadership role to insure that the future generations of
real estate leaders has a solid training. But the industry
has a larger purpose in insuring that our region remains a
vital place to live and do business.”

It is clear that it is these responsible
people of New Zealand and Portland in the United States in
understanding their civic responsibilities, who are leading
the way in exploring solutions to allow affordable housing
to be provided. And importantly - ensuring too, that the
reasonable and responsible environmental needs of their
communities are met.

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